Cardinal Health 2009 Annual Report Download - page 93

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have the ability to process large quantities of products in central locations and self distribute these products to
their individual retail stores or customers. Revenue from bulk customers is recorded when title transfers to the
customer and the Company has no further obligation to provide services related to such merchandise.
Revenue for deliveries that are direct shipped to customer warehouses from the manufacturer whereby the
Company acts as an intermediary in the ordering and delivery of products is recorded gross in accordance with
FASB Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus
Net as an Agent.” This revenue is recorded on a gross basis since the Company incurs credit risk from the
customer, bears the risk of loss for incomplete shipments and does not receive a separate fee or commission for
the transaction and, as such, is the primary obligor.
Radiopharmaceutical revenue is recognized upon delivery of the product to the customer. Service-related
revenue, including fees received for analytical services or sales and marketing services, is recognized upon the
completion of such services.
Clinical and Medical Products. This segment generates revenue through the sale and lease of equipment,
software, medical products and supplies, and the income associated with the financing of equipment leases.
The majority of the revenue transactions qualify as multiple element arrangements. Revenue under these
arrangements is accounted for in accordance with the principles of Emerging Issues Task Force Consensus
No. 00-21, “Multiple Element Arrangements” and, if applicable, American Institute of Certified Public
Accountants Statement of Position No. 97-2, “Software Revenue Recognition,” and SFAS No. 13, “Accounting
for Leases.” Revenue in multiple element arrangements is allocated to each unit of accounting using the relative
fair value method. Revenue is recognized for each unit of accounting individually. Fair value evidence used
during the allocation process is limited to vendor specific objective evidence (“VSOE”) or historical prices in
which the products have been sold in stand-alone transactions. To the extent products have not yet been sold on a
stand-alone basis, VSOE of fair value is the price which management with the authority to do so has established
for the product. In the event that VSOE of fair value does not exist, data points outside of the organization are
utilized as objective evidence of fair value for non-software products. When fair value evidence exists for
undelivered elements but does not exist for delivered elements, the Company applies the residual method.
The Company periodically reviews product offerings with embedded software to determine whether the
software is more than incidental to the product as a whole. When embedded software is more than incidental to a
product as a whole, the product is classified as software for revenue recognition purposes. Any non-software
product for which a software product is essential to its functionality is classified as a software related element.
Software-related elements also include software installation services and post contract support. Software and
software-related elements are recognized as revenue in accordance with the guidance of SOP No. 97-2. Software
and software-related elements, with the exception of software maintenance, are recognized as revenue upon the
later of delivery and the completion of associated service obligations. Software maintenance arrangements and
other post-contract support offerings are recognized as revenue ratably over the service period.
Equipment sale revenue is recognized upon the transfer of title and risk of loss to the customer and the
substantial completion of installation or training services. When related installation and training services are
considered inconsequential, delivery is deemed to occur upon the transfer of title and risk of loss at which time
revenue and the costs associated with installation and training are recognized.
Equipment lease transactions are evaluated and classified as either operating leases or sales-type leases as
defined in SFAS No. 13. The segment recognizes sales-type leases as revenue upon the completion of installation
activities in the amount of the present value of the minimum lease payments. Operating lease revenue is
recognized evenly over the lease term, commencing upon the completion of installation activities. Equipment
financing revenue is recognized over the term of the sales-type lease using the effective interest method.
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